Did Smart Money 'Tip Its Hand' On Friday July 22 Regarding The Gilead Sciences' Earnings?

| About: Gilead Sciences, (GILD)

Summary

Recent earnings estimate boosts suggest Gilead Sciences will have an "earnings beat".

The price trend since mid-July has been flat, and no strong signal is found in Friday's intraday trading pattern.

However, based on the April 26-27 selling waves, there are grounds for concern about a major anticipatory wave on Monday morning, hours before the Q2 EPS report.

According to a July 21st article in Seeking Alpha, analysts have very recently raised their estimates for Gilead Sciences' (NASDAQ:GILD) Q2 2016 earnings, which will be published Monday afternoon, July 25th. The text seems to imply that some writers are suggesting that this revaluation of estimates is a prelude to an "earnings beat" (at least, relative to the past consensus earnings estimate), which might then be followed by a boost to the stock price.

It seems a reasonable assumption that if the Smart Money already "knows the results", we should check to see whether they have tipped their hands in the pattern of trading over the last several days and especially last Friday. A study of the charts indicates that the there is no indication in the last week or two, or over the last five days, that the Smart Money has, on balance, "gone long" on GILD in anticipation of Monday's Q2 2016 earnings report.

The one-month chart for GILD at Yahoo Finance shows an upward-sloping price wave from late June to about mid-July, and a flat trend line since then.

Did the Big Money tip their hands in last Friday's intraday trading pattern? (I assume that the Smart Money and the Big Money are two highly overlapping groups.) Chart 1 gives us the answer.

Click to enlarge

For Chart 1, the trading day has been split into one-minute time slots. Time is shown along the horizontal axis starting at 9:30 AM and ending at 4 PM. On the left vertical axis are shown trading volumes for one minute time slots. The stock price is shown on the right vertical axis.

There are three curves. The purple curve represents the closing prices at the end of each minute. The blue and the red curves represent volume spikes that have been created in the following manner. When the sum of the high and low prices for a particular minute exceeds that for the preceding minute, the volume is given a positive sign. The positive volumes, called "up-spikes" are shown in the blue curve. When the said sum is less than that for the preceding minute the associated volume is given a negative sign. The negative volumes, called "down-spikes", are shown in the red curve. In effect we are using the old but still useful money-flow indicator applied to minute-to-minute data.

The top section of the chart shows only "big volumes". A big volume is one that is greater than the third quartile of the distribution of volumes for the day in question -- it is very much the subset comprising the largest volumes of the day. The bottom section of the chart shows "small volumes" only. These are volumes that are smaller than the median volume of the day. On many days the pattern shown in the bottom section would be dominated by retail traders and small institutions.

As you would expect, marked price movements primarily reflect imbalances between buying and selling forces among the big-money traders, whose activities are reflected in the top section of the chart.

Here the phrase "buying force" refers to the aggregate of orders to buy at bid prices close to the price at which the last trade was made. The phrase "selling force" refers to the aggregate of orders to sell at ask prices close to the price at which the last trade was made.

On the whole, among the Big Money, buying forces were predominant until about 12:30 PM. Then the buying forces mostly 'went out to a long lunch' until it engaged the selling forces in a big 'dust-up' during the last 15 minutes of trading.

About 2:45 PM a 'run' of red spikes started (net selling). It intensified during the last 15 minutes before Market Close; but in those minutes the two forces were fairly well matched until the famous block of Buy/Sell on Close orders at 4:00 PM.

The prominent vertical red line at the end represents over 3/4th of one million shares in the Buy/Sell block. The line is red because the sellers beat the buyers. However, since the price moved from only 86.75 to 86.50, the buying force had not gone to sleep in the face of a monstrous wave of selling.

So, on the whole, Friday's intraday trading shows no strong signal from Big Money. However, there is an indication of a net negative sentiment among Big Money as the official market hours came to a close.

If there is a gap-down Monday morning without a corresponding one in SPY or IBB, then we might have a confirming signal.

As the next chart shows, if we go back to the passage from April 27th near the Close (4:00 PM) to April 28th at the Open, thus several hours before the April 28th Q1 2016 results were announced, we might have reason to anxiously await the happenings of next Monday morning.

I elaborate this remark with a quote from the analysis of the April 28th to 29th price crash. "The next big selling wave came right at the end of the day on April 27th when an impressive smash-down force hit the price. Two major down-spikes at the end of April 27th had volume weights of nearly 1/4 of a million and over 1/2 of a million, respectively. The sellers followed that late April 27th victory over the buyers with another huge smash-down force on the price between 9:35 AM on 9:45 AM on April 28th. This was a wake-up call on what would follow later on. "

In sum, the data do not support the idea that the Smart Money has, as of last Friday, "gone long" on GILD in anticipation of a nice "earnings beat" when the company reports on Monday afternoon. This observation is further supported by the results of my study report on price waves before and after earnings report day announcements on each of the last six earnings days (ER days) for Gilead Sciences . The study has five tables with detailed statistics about those waves. You can see the table titles here.

Generally, across those six ER days, the prominent price waves around earnings day happened more often than not prior to that day, with a big exception being the April 28, 2016 ER day. Details on what the historical data show are in the just cited study report, which is a technical tutorial on a new approach to stock price forecasting that focuses on percentage changes in pairs of price waves surrounding foreseeable "big events".

Disclaimer. I am not a licensed investment adviser, and this article is a descriptive piece provided for information purposes. It is not designed to recommend, even by implication, your buying or selling any securities. I have tried hard to avoid introducing erros; but cannot guarantee that this article is fit for any specific application.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.